Tuesday, September 04, 2012

Deciding factors that create jobs

Republicans advocate reducing taxes on the job creators as a viable means to grow jobs. They claim that burdening job creators with additional costs will reduce the likelihood that they will hire. I like to call this the "job creator lie" because it is nothing more than a Republican empty threat. Greed is the source of the lie. It is intended to prevent government taxes on the wealthy, ruling class who apparently are teetering between great wealth and possible financial ruin and taxes would make all the difference.

Are taxes really the major determining factor preventing job creation? Certainly not. Studies have shown that there is absolutely no correlation between taxes and job creation. In fact, some have reported that in times where the rich have had to pay higher taxes, more jobs have been created. You can rest assured that taxes are not the reason that Republicans spread this job creator lie.

So let's assume that greed is the main reason for the lie. What then are the factors that really play a part in job creation? Some factors like supply and demand appear obvious. There are many theories behind how these two factors interact. But which is most important? And are there any other factors like cost of labor or business owner's wealth?

When a business is started, it is assumed that markets have been evaluated and the product or service is something of value which consumers will purchase. Some estimate of the demand and the profits are made in a business plan and start-up funding is found. Eventually people are hired to operate the business and the first jobs are created. In some large businesses there is a choice of hiring from an American workforce or a foreign workforce. Because patriotism is not a belief of many profit motivated businessmen, where it is possible it is an easy choice to hire cheaper labor from foreign sources. So even when a new business is started, American job growth is not guaranteed. In that way, business owner's wealth and cost of labor is an important factor determining where jobs will be created.

Simply stated, job growth usually happens when a business has a product or service which has demand that exceeds the supply or when the demand for a greater number of products or services offered exceed the capacity of the existing workforce. The important word is "demand."

When we talk about demand sources, we are talking about the consumers who mainly are also the workers in America. The major factor which affects consumer demand is consumer pay. Pay comes from jobs. When Americans do not have jobs or when those that have jobs are not paid well, American demand for products will decrease. This decrease in demand cannot be overcome by making more products. It cannot be overcome by reducing taxes of the wealthy business owners. It cannot be overcome by producing cheaper products in a foreign country or by foreign workers in America. It can only be overcome by finding new markets or sources of demand.

For many businesses this is not an option. As demand decreases, so do the profits of that business. Without new sources of demand, the business is forced to take drastic actions. Perhaps first trying to increase demand by reducing the price of products and then by reducing the workforce to be more in line with the decrease in demand. Eventually it may mean the business is sold off to a venture capitalist or becomes bankrupt and fails.

Businesses need consumers. The loss of demand is a bigger threat to them than any increase in taxes.

There should be a synergy between the executives and the workers in a business where both parties are aware of the importance each has for the other. In recent years workers wages have stayed stagnant while executives wages have increased 300 percent. The greed that is implied in these statistics is as much a cause for the loss of demand and resultant loss of jobs than anything else unscrupulous business owners have done.

It is time that American workers have been made whole again and received the importance they deserve in this relationship with business. President Obama's policies are the greatest hope we have to restore jobs to Americans, revitalize the economy and return demand to businesses.